BA case: £250m payment was for APS trustees to use how they saw fit, says ex-chairman
A £250m contingent payment, due to be paid in 2019, was created for Airways Pension Scheme (APS) trustees to use however they wanted, according to its former chairman.
The claim was made by Paul Spencer during the High Court trial where British Airways (BA) is contesting the decision by APS trustees to award a 0.2% discretionary increase - above the Consumer Price Index (CPI) - in the 2013/14 financial year. This was after the scheme was moved from the Retail Price Index (RPI).
A £250m reserve was set up following the 2009 triennial valuations of APS and the New Airways Pension Scheme (NAPS). It was created to be paid out to APS if the scheme was not fully funded in 2019, with any remaining reserves paid to NAPS.
Giving evidence on 22 November, Spencer said the contingent payment was meant to help the scheme pay RPI increases, as it had been agreed alongside RPI-based assumptions in the valuation.
"My standing point is [the £250m] was there if we needed it," he said. "That was what it had been designed to do.
"If we needed that £250m to get us back to RPI, that was exactly what it had been designed for. As the chairman of both funds, I was very clear at the time this £250m was negotiated how it was intended. It was there for APS first and primarily not there for NAPS."
Spencer's comments backed up a previous claim by employer-nominated trustee Charles Maunder, made earlier in the case, that the money was pledged to APS and should therefore be used by APS.
Spencer also recalled how in 2011 the scheme was prepared to neglect de-risking the fund if BA refused to cooperate with discretionary increases.
"Trustees didn't have many powers to be able to negotiate," he said. "The nuclear power is to call a valuation early and the second power, we were effectively able to manage the assets of the company.
"What I was doing the whole time is trying to get [BA] to the table to negotiate. It's a perfectly legitimate negotiating factor."
Trustees were also angry with BA for "manipulating" a cash sweep in 2012, Spencer said. This led to APS trustees considering retaliation in the form of awarding a discretionary increase.
The trustees, according to Spencer, had agreed the company did not need to include money set aside for fines in the cash sweep total. However, BA later used the money to refinance aircraft.
"I think myself and all the trustees were very upset by BA's tactics when, in terms of the cash sweep we had accommodated very responsibly a situation where they had cash sitting in the accounts, we agreed those monies [for fines] did not need to be taken into account in the cash sweep," he said.
"They then immediately financed a couple of aircrafts, so the cash sweep wasn't paid. That was really irresponsible and bad form and showed a negative to the pension fund. We were angry about that. Here is one way we can show we object to being treated in that way."
This was one of a number of occasions, the court was told, where trustees had considering using discretionary increases as a tactic.
Spencer added the APS board had decided not to inform BA or The Pensions Regulator (TPR) about its February 2013 decision to award an increase, because the decision was not concrete until June 2013.
He also suggested TPR had a conflict when dealing with the fund.
"The regulator has a conflict and I don't think they are handling the conflict very well," he said. "The regulator is the regulator for the APS pension fund. It is also the regulator for NAPS. It has also another objective of protecting the Pension Protection Fund [PPF]."
He claimed the regulator didn't want APS to receive the £250m contingent payment in 2019, because NAPS had a larger deficit, and giving the £250m would mitigate the possibility of NAPS falling into the PPF.
"NAPS is more likely to fall into the PPF," he continued. "That was a disgraceful position to be taking. I think they are thinking about it completely from a NAPS and a PPF point of view and I don't think that was correct."
For this reason, APS trustees did not intend to fully consult with the regulator. In addition, they felt they had consulted with BA to a good standard prior to the June 2013 decision, and so they were able to set an implementation date for the 0.2% increase for September 2013.
Further consultation ultimately led to new concerns being raised by BA and TPR and so the decision was re-run in November, when trustees again voted for a 0.2% increase.
Spencer is due to conclude giving evidence on 23 November, after which he will be followed by member-nominated trustee Paul Douglas. The case is due to conclude on 9 December.
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